Consumer spending is likely no longer the driving force behind of the outperformance of retail property over industrial property and office space, according to John Loos, property sector strategist at FNB Commercial Property Finance.

The latest FNB Property Broker Survey shows the majority of respondents pointing to an average vacancy rate increase over the past six months in the retail property sector. These respondents are also least optimistic on retail property performance in the near term, compared to their expectations regarding near term market activity in the office and industrial property sectors.

“About 28% of respondents indicated that the poor state of the economy (by implication the consumer) was a key factor in driving their near-term expectations for retail property market activity, versus 22% citing rental affordability as a challenge and 13% pointing to the online retail ‘threat’,” says Loos.

He argues that over the past two decades, the consumer has cumulatively “outperformed” the SA economy, assisting the retail property market to outperform other major property sectors over much of this period.

“While the size of the real economy, as measured by gross domestic product has grown by 69.3% over the 20-year period, real household sector disposable income has increased by a more significant 81.4%, and real household sector consumption expenditure by and even faster 86.5%,” says Loos.

“However, the financial pressures on the consumer, along with their change in sentiment, are the key near term negatives from a retail property performance point of view. The ‘threat’ of online retail is still of lesser – though significant – importance.”

The strong performance of the consumer over many years was key to retail property’s outperformance of the other major property sectors.

Consumer performance was driven by sharp interest rate reduction post-1998 and effective personal tax rates being reduced. Retailers were also relying on a steady decline in the household savings rates at least for the first 10 years of the period up until 2008.

“Times were good, household net wealth was growing due to strong asset price growth pre-2008, and consumer confidence was high. However, the consumer environment has changed significantly in more recent years,” says Loos.

“Therefore, while not ignoring the importance of online retail in future, currently the state of the consumer’s confidence and finances arguably deserves a lot more concern.”